Hedgeye Cartoon of the Day: "Soft" Landing
It is 1.10.23, and Active Short MPW is overvalued by approximately... whatever the current share price is. Remember Shasta? The company highlighted it as a past re-tenanting success back with 2Q22 results. We're pretty sure no one really looked into the situation to verify the company's claims, so we are digging in and will publish thoughts later in the week. But a familiar pattern emerges.
Ticker: CUBE
Company Name: New Active Short CubeSmart
Subsector: Self-Storage
Headline: CUBE joins UHAL among storage REITs on the short side
- We are adding CubeSmart (CUBE) to the Active Short list this morning.
- First, the stock is signaling VERY bearish TRADE and TREND. In fact, on yesterday's check it is among the most bearish signal stocks in our coverage along with EXR below.
- Second, we think that CUBE may be setting up for a "miss" on the FY23 outlook when it reports 4Q22 earnings, following EXR's miss on FY22 along with 3Q22 results and a downshift in growth expectations.
- We are ~2% below FactSet consensus on our FY23 Core FFO estimate of ~$2.65.
- Incorporates +4.4% average rate growth, -120bps of occupancy loss, +2.1% SSNOI growth and essentially no acquisition activity executed in FY23.
- Pull up the consensus revision trend charts for CUBE vs. the other self-storage REITs - CUBE is the only name among the five self-storage REITs that has yet to see any downward revisions to forward four-quarter FFO estimates post-3Q22. EXR has clearly and very logically seen the most severe revisions
- Third, and related to the first, the RoC is massively decelerating (SSNOI +16% in FY22, moving to potentially +2% this year). We see CUBE + the space at this point in the cycle as another COVID "over-earner" with occupancy still 100-200bps above "normal."
- Fourth, in our view (and we think investors' as well) the stock remains in the penalty box on capital allocation after paying a very fully priced sub-4% cap rate for a fully stabilized Storage West in 4Q21. That equated to ~$1.7 billion or ~10% of CUBE's total market cap at the time, and CUBE basically top-ticked the market. Contrast this with several value-add acquisitions executed by PSA throughout 2021 and into the top, where at least there was additional "juice to squeeze" via bringing occupancy up to stabilized levels.
- At this point we have more conviction that CUBE is setting up for a FY23 miss here vs. EXR (just added to the Short Bench below) and the rest of the space. Recall EXR took its medicine earlier with 3Q22 results.
- The risk here on the short side is public-to-public M&A or the entrance of an activist pushing a sale, specifically that either PSA (most likely with its desire to flex its balance sheet capacity) or EXR use their superior costs of capital to add a "bite size" portfolio of institutional quality assets. We think that several things stand in the way of that, at least for a time - Quad 4, the credit markets and potential "social" issues between and among companies which always make public REIT M&A relatively unlikely events to handicap.
- We think its a function of time and space, with the "time" being at least 6-9 months and the "space" being additional downside from here.
Tickers: SBAC, EXR, WPC
Company Names: SBA Communications, Extra Space Storage, W.P. Carey
Subsectors: Various
Headline: Removing SBAC from Active Short list + two other changes
- We are removing SBAC from the Active Short list (added on 8.16.22) after a +18% total return (+277bps vs. XLRE on the short side) over the hold period. First and most importantly, TREND for the stock is $290/share and the signals are telling us the stock is on the cusp of doing something new here. Second, recall we cited marginally worsening credit at the top of the tower stack + slowing MNO capex spend + international capital allocation/issues + a rising cost of capital as catalysts to dent the stock's sky-high valuation (similar to PLD in early-2022) vis-a-vis SBAC's bonds. That denting happened. And lastly, we told subs last year there would come a time when SBAC would start making sense on the long side as we moved deeper into Quad 4, just that we needed a downward adjustment first. We are getting there.
- Adding EXR to the Short Bench for many of the same fundamental sector (not company-specific) reasons as with CUBE, plus the signal is screaming bearish TRADE and TREND.
- Adding WPC to Long Bench - doing additional work on this one, but a rare REIT signaling bullish TRADE and TREND. Put this one up there with EQIX, STAG and IRM as signaling the most bullish.
Figure 1: Hedgeye REITs Position Monitor
Source: Company Reports, FactSet, Hedgeye
Prior Notes:
1.8.23 - SUNDAY NIGHT REIT READ | SD WHISTLEBLOWER CASE ACTIVITY + EPR FEEDBACK | 1.8.23 (INVH, EPR, MPW)
1.7.23 - THE (DIS)TRUST SERIES | VOL. XXXVIII | ADD'L STEWARD VENDOR COMPLAINTS | 1.7.23 (MPW)
1.6.23 - REITS WEEKLY VALUATION HANDBOOK | 1.6.23
1.6.23 - EVENT REPLAY | NEW ACTIVE SHORT EPR PROPERTIES BLACK BOOK | 1.6.23 (EPR)
1.4.23 - THE (DIS)TRUST SERIES | VOLUME XXXVII | ARTICLE ON "PONZI HOSPITALS" | 1.4.23 (MPW)
1.4.23 - FLASH | JUDGE DENIES INVH'S MTD | 1.4.23 (INVH)
1.3.23 - REITS DAILY BRIEF | INITIAL THOUGHTS ON EPR | 1.3.23 (EPR)
1.1.23 - EVENT INVITE UPDATE | EPR PROPERTIES (EPR) BLACK BOOK | THURSDAY, 1/5 @ 12:30 PM ET
12.30.22 - REITS WEEKLY VALUATION HANDBOOK | 12.30.22
12.26.22 - MONDAY NIGHT REIT READ | MPW "CHEAT SHEET" | 12.26.22 (EPR, MPW)
12.23.22 - REITS WEEKLY VALUATION HANDBOOK | 12.23.22
12.22.22 - THE (DIS)TRUST SERIES | VOLUME XXXVI | STEWARD ABL EXTENSION + OUR QUESTIONS | 12.22.22 (MPW)
12.22.22 - REITS DAILY BRIEF | POSITION MONITOR UPDATE | 12.22.22 (EPR)
12.20.22 - REITS DAILY BRIEF | 12.20.22 (CUBE, EXR, LSI, NSA, PSA, MPW)
12.18.22 - SUNDAY NIGHT REIT READ | TAKING AN "L" ON HR | 12.18.22 (HR, DOC)
12.16.22 - THE (DIS)TRUST SERIES | VOLUME XXXV | GOAL POSTS TORN DOWN? | 12.16.22 (MPW)
12.16.22 - REITS WEEKLY VALUATION HANDBOOK | 12.16.22
12.15.22 - REITS DAILY BRIEF | FLORIDA REINSURANCE BILL + MPW/STEWARD WTF? | 12.15.22 (AMH, INVH, TCN, MPW)
12.14.22 - REITS DAILY BRIEF | RENT CONTROL MEASURES + CEO CHANGE AT DLR | 12.14.22 (APARTMENTS, DLR)
12.14.22 - THE (DIS)TRUST SERIES | VOLUME XXXIV | GOALPOSTS CONSTANTLY MOVING... | 12.14.22 (MPW)
12.12.22 - THE (DIS)TRUST SERIES | VOLUME XXXIII | PIPELINE AUCTION CALLED OFF | 12.12.22 (MPW)
12.11.22 - SUNDAY NIGHT REIT READ | APARTMENT ITEMS + BREIT/SREIT + MPW MUSINGS | 12.11.22 (APARTMENTS, MPW)
12.9.22 - REITS WEEKLY VALUATION HANDBOOK | 12.9.22
12.9.22 - REITS DAILY BRIEF | INVH TAKES OUT 2018-1 SECURITIZATION | 12.9.22 (INVH)
12.6.22 - THE (DIS)TRUST SERIES | VOLUME XXXII | CIRCULATING THE CBS REPORT ON PROSPECT | 12.6.22 (MPW)
12.2.22 - REITS WEEKLY VALUATION HANDBOOK | 12.2.22
12.1.22 - REITS DAILY BRIEF | EQT "IN DISCUSSIONS" TO ACQUIRE RADI? | 12.1.22 (RADI)
11.29.22 - REITS DAILY BRIEF | HEALTHSCOPE PUSHED BACK + INDT BID | 11.29.22 (MPW, INDT)
11.28.22 - THE (DIS)TRUST SERIES | VOLUME XXX | PIPELINE BK UPDATE + STOCK IS NOT "CHEAP" | 11.28.22 (MPW)
11.27.22 - SUNDAY NIGHT REIT READ | POSITION MONITOR + VAL HANDBOOK | 11.27.22 (DLR, EQIX, HR, DOC, SBAC, MPW)
11.22.22 - REITS DAILY BRIEF | RESI NEWS ITEMS | 11.22.22
11.20.22 - SUNDAY NIGHT REIT READ | UHAL NUMBERS + POSITION MONITOR UPDATE | 11.20.22 (UHAL)
11.19.22 - THE (DIS)TRUST SERIES | VOLUME XXIX | UPON FURTHER REVIEW... | 11.19.22 (MPW)
11.18.22 - REITS WEEKLY VALUATION HANDBOOK | 11.18.22
11.16.22 - REITS DAILY BRIEF | NOTES FROM NAREIT DAY #1 | 11.16.22
11.15.22 - THE (DIS)TRUST SERIES | VOLUME XXVIII | IMPORTANT UPDATES FROM CMAX | 11.15.22 (MPW)
11.14.22 - THE (DIS)TRUST SERIES | VOLUME XXVII | HEALTHSCOPE PORTFOLIO SALE UPDATE | 11.14.22 (MPW)
11.13.22 - SUNDAY NIGHT REIT READ | POSITION MONITOR UPDATE | 11.13.22 (IRM, PGRE)
11.11.22 - REITS WEEKLY VALUATION HANDBOOK | 11.11.22
11.9.22 - THE (DIS)TRUST SERIES | 3Q22 10-Q REVIEW | 11.9.22 (MPW)
11.9.22 - RADI 3Q22 RESULTS | 11.9.22
11.7.22 - THE (DIS)TRUST SERIES | HEADING BACK TO CHERNOBYL... | 11.7.22 (MPW)
11.6.22 - SUNDAY NIGHT REIT READ | POSITION MONITOR UPDATE + SBAC REVIEW | 11.6.22 (ADC, O, NTST, SBAC)
11.5.22 - THE (DIS)TRUST SERIES | VOLUME XXIV | OPERATIONS SUSPENDED AT DCMH | 11.5.22 (MPW)
11.4.22 - REITS DAILY BRIEF | SOME FOLLOW UP ITEMS, INCLUDING ON INVH | 11.4.22
11.4.22 - REITS WEEKLY VALUATION HANDBOOK | 11.4.22
11.3.22 - AMH 3Q22 RESULTS | MORE PROPERTY TAX MEDICINE | 11.3.22
11.3.22 - REITS DAILY BRIEF | POSITION MONITOR UPDATE | 11.3.22
11.2.22 - LSI 3Q22 RESULTS | LSI TO THE RESCUE? | 11.2.22 (LSI)
11.2.22 - REITS DAILY BRIEF | OCTOBER APARTMENT RENT TRACKER | 11.2.22
11.2.22 - EXR 3Q22 RESULTS | OOF | 11.2.22 (EXR)
11.2.22 - PSA 3Q22 RESULTS | 11.2.22 (PSA)
11.1.22 - THE (DIS)TRUST SERIES | VOLUME XXIII | REAL-TIME LOOK AT TEXARKANA | 11.1.22 (MPW)
11.1.22 - THE (DIS)TRUST SERIES | VOLUME XXII | PIPELINE UNSECURED CREDITOR OBJECTION | 11.1.22 (MPW)
10.31.22 - REITS DAILY BRIEF | WE MADE A MISTAKE - ADJUSTING INVH NUMBERS | 10.31.22 (INVH)
10.31.22 - THE (DIS)TRUST SERIES | VOLUME XXI | PIPELINE BK UPDATE | 10.31.22 (MPW)
10.30.22 - SUNDAY NIGHT REIT READ | UPDATED INVH MODEL ASSUMPTIONS | 10.30.22 (INVH, MPW)
10.28.22 - THE (DIS)TRUST SERIES | VOLUME XX | BACK TO THAT DRY HOLE IN TX... | 10.28.22 (MPW)
10.28.22 - REITS WEEKLY VALUATION HANDBOOK | 10.28.22
10.28.22 - STAG 3Q22 RESULTS | 10.28.22 (STAG)
10.27.22 - INVH POST-3Q22 CALL THOUGHTS | 10.27.22 (INVH)
10.26.22 - MAA 3Q22 RESULTS | 10.27.22 (MAA)
10.26.22 - INVH 3Q22 RESULTS | PERHAPS THE WORST QTR IN RECENT MEMORY FOR A "BLUE CHIP" | 10.26.22 (INVH)
10.26.22 - THE (DIS)TRUST SERIES | VOLUME XIX | 3Q22 PREVIEW | 10.26.22 (MPW)
10.26.22 - EQR 3Q22 RESULTS | ANOTHER DECEL IN LEASING SPREADS | 10.26.22 (EQR)
10.25.22 - REITS DAILY BRIEF | THOUGHTS ON NXRT'S 3Q22 | 10.25.22 (NXRT)
10.25.22 - THE (DIS)TRUST SERIES | VOLUME XVIII | I'M THE CAPTAIN NOW... | (MPW)
10.25.22 - THE (DIS)TRUST SERIES | VOLUME XVII | THAT'S SOME EXPENSIVE GRASS! | (MPW)
10.23.22 - SUNDAY NIGHT REIT READ | LOT'S TO READ ON SFR | 10.23.22 (VRE, AMH, INVH, TCN, MPW, SBAC)
10.21.22 - REITS WEEKLY VALUATION HANDBOOK | 10.21.22
10.21.22 - REITS DAILY BRIEF | THC NEGATIVE READ ACROSS FOR STEWARD ET AL | 10.21.22 (MPW)
10.20.22 - REITS CLIENT ALERT | 10.20.22 (MPW)
10.20.22 - REITS DAILY BRIEF | 3Q22 EARNINGS NOTES | 10.20.22 (REXR, CCI)
10.19.22 - CLARIFICATION ON MAA PORTION OF PRIOR NOTE | 10.19.22 (MAA)
10.19.22 - REITS DAILY BRIEF | NOTES FROM PLD'S 3Q + SUDDEN MAA CHANGE | 10.19.22 (PLD, MAA, MPW)
10.17.22 - REITS DAILY BRIEF | ELS MISS + SFR CONSIDERATIONS AROUND QUARTERRA | 10.18.22 (ELS, AMH, INVH, TCN)
10.16.22 - SUNDAY NIGHT REIT READ | ADDING STAG TO ACTIVE LONG LIST | 10.16.22 (STAG, MPW)
10.15.22 - THE (DIS)TRUST SERIES | VOLUME XV | RESPONDING TO CEO INTERVIEW | (MPW)
10.14.22 - REITS WEEKLY VALUATION HANDBOOK | 10.14.22
10.11.22 - REITS DAILY BRIEF | 10.11.22 (CPT, INVH, MPW)
10.10.22 - THE (DIS)TRUST SERIES | VOLUME XIV | WE CALL YOUR BLUFF | (MPW)
10.10.22 - THE (DIS)TRUST SERIES | VOLUME XIII | HEALTHSCOPE SALE WOULD LIKELY BE DILUTIVE | (MPW)
10.9.22 - SUNDAY NIGHT REIT READ | 10.9.22 (RE FUND FLOWS, MPW, VNO)
10.7.22 - REITS WEEKLY VALUATION HANDBOOK | 10.7.22
10.7.22 - THE (DIS)TRUST SERIES | VOLUME XII | WHAT EXACTLY IS "CREF?" | (MPW)
10.6.22 - THE (DIS)TRUST SERIES | VOLUME XI | PROSPECT BUYING BACK CT HOSPITALS FROM MPW | (MPW)
10.5.22 - REITS DAILY BRIEF | FACEBOOK TERMINATING 225 PARK AVE LEASE | 10.5.22 (GATEWAY OFFICE, MAA)
10.4.22 - REITS DAILY BRIEF | WHERE ARE INVH'S + SUI'S IAN UPDATES? | 10.4.22 (INVH, SUI, MPW)
10.3.22 - THE (DIS)TRUST SERIES | VOLUME X | TAKEAWAYS FROM INITIAL PIPELINE FILINGS | (MPW)
10.3.22 - FLASH | THE (DIS)TRUST SERIES | VOLUME IX | MPW's ~#12 TENANT FILES IN BK COURT | (MPW)
10.3.22 - SUNDAY NIGHT REIT READ (ON MONDAY MORNING) | 10.3.22 (SBAC, WY)
10.1.22 - REITS WEEKLY VALUATION HANDBOOK | 10.1.22
9.30.22 - FLASH | (DIS)TRUST SERIES | VOLUME VIII - DID STEWARD JUST BLOW UP? | (MPW)
9.30.22 - THE (DIS)TRUST SERIES | VOLUME VII - NOTHING TO SAY? | (MPW)
9.29.22 - REITS DAILY BRIEF | DIVVY HOMES LAYOFFS / GENERAL EXTERNAL GROWTH SLOWDOW | 9.29.22 (AMH, INVH, TCN)
9.28.22 - REITS DAILY BRIEF | WEN STEWARD CREDIT FACILITY? | 9.28.22 (MPW, APARTMENTS)
9.28.22 - THE (DIS)TRUST SERIES | VOLUME VI - A FAMILY AFFAIR (MPW)
9.26.22 - REITS DAILY BRIEF | IAN MUCH MORE THREATENING | 9.26.22 (ELS, SUI, AMH, INVH)
9.25.22 - SUNDAY NIGHT REIT READ | TS IAN SWINGING WEST | 9.25.22 (RESIDENTIAL)
9.23.22 - THE (DIS)TRUST SERIES | VOLUME V - THE CURIOUS CASE OF DISAPPEARING WORK EXPERIENCE | 9.23.22
9.23.22 - REITS WEEKLY VALUATION HANDBOOK | 9.23.22
9.20.22 - THE (DIS)TRUST SERIES | VOLUME IV - SO... ABOUT THAT ~$335 MILLION LOAN | 9.20.22 (MPW)
9.18.22 - THE (DIS)TRUST SERIES | VOLUME III - I'M ON A BOAT! | 9.18.22 (MPW)
9.16.22 - REITS WEEKLY VALUATION HANDBOOK & POSITION MONITOR UPDATE | 9.16.22 (STOR)
9.15.22 - THE (DIS)TRUST SERIES | VOLUME 2 - WHATS A WHISTLEBLOWER TO DO? | 9.15.22 (MPW)
9.15.22 - THE (DIS)TRUST SERIES | VOLUME 1 - SEMC NLRB COMPLAINT | 9.15.22 (MPW)
9.14.22 - REITS DAILY BRIEF | 9.14.22 (CPT, MAA, NXRT)
9.13.22 - REITS DAILY BRIEF | RESIDENTIAL UPDATES FLOODING IN | 9.13.22 (AMH, INVH)
9.9.22 - REITS WEEKLY VALUATION HANDBOOK | 9.9.22
9.7.22 - REITS DAILY BRIEF PART II | WHAT REALLY HAPPENED W/ WATSONVILLE? | 9.7.22 (MPW)
9.7.22 - REITS DAILY BRIEF | LOOK AT RENT CONTROL MEASURES ON THE NOV BALLOT | 9.7.22 (RESIDENTIAL)
9.5.22 - MONDAY NIGHT REIT READ | INVH ADDED TO S&P 500 + MORE MPW THOUGHTS | 9.5.22 (INVH, MPW)
9.2.22 - REITS WEEKLY VALUATION HANDBOOK | 9.2.22
9.1.22 - REITS DAILY BRIEF PART II | PROBABILITY UP THAT COMPLAINT GOES MULTI-STATE | 9.1.22 (INVH)
9.1.22 - REITS DAILY BRIEF | POSITION MONITOR UPDATES | 9.1.22 (EQR, PGRE)
Please e-mail with any questions.
Rob Simone, CFA
Managing Director
Twitter: @HedgeyeREITs
